Driving Change: The Evolution of Dealer Management Systems

Well, I think we're, sadly, we're probably in a stall for computer systems for dealers. I wish we had an awful lot more exciting things to talk about. I wish we could talk about all the new developments and all the new technologies we're using and how we're just going to blow up the world. I can do that in other industries. Whether you like them or don't like them, you could talk about it in electric vehicles. You could talk about it in AI. You could talk about it in retail. There's so many places that exciting things are happening. Unfortunately, this particular industry, especially as it relates to business systems, is kind of... status quo. And in fact, in my opinion, and I should have warned you, Ron, I'm a little spicy on this.

Yeah, I don't think I ever wrote a piece that got this much traction and literally rang my phone off the hook.

Okay, so the blog was called Wait, Wait, Don't Sign It. And fundamentally, it started because I had a number of dealer friends who called who were under what they felt was pressure. Some felt extreme pressure to go ahead and start signing three and as long as five year contracts with their existing software supplier. I think you'll go back even a few more conversations between you and I. I'm always harping on the rate of change and what you should expect from your software supplier. And we're not looking at five-year timelines anymore or three-year timelines. Things now are measured in days as opposed to years. So they're like, well, should I be signing contracts for five years to see something change? Should I be signing for three years? And where is my leverage? Interestingly enough, following up that particular blog post, I even got calls from the software suppliers. A couple that would politely ask me to shut up.

So clearly, that means I'm on the right track somewhere. And even had one supplier who said, hey, we've taken your advice. We won't give you credit for it, but our contracts are now limited to a year. And when I asked them why their contracts were limited to a year, they said, well, if we can't prove and earn your business over a year, then you should have the right to look around. And that's kind of that's that's I guess that's an old school mentality, but it's something that's missing in the market today.

And I'm going to assume you're asking the million dollar question right now. And I'm going to give you the billion dollar answer. The challenge with those contracts right now, let me step back. There was a time where the dealer business system was responsible in partnership and in coordination with the dealer. to grow that software on a very regular basis. And there was a real synergy between the software provider and the dealership. I'll give you an example. My background was I started installing in a dealership. And when I later came into the company, the management of the company, and eventually owning the company with some great partners, we all understood our whole goal was to give the dealer tools that would make them... profitable, strong, grow as fast as we can. And ultimately, maybe we were a little naive because our answer was, if the dealers do really well, we'll do really well. And that stood us in good stead for probably 20 years.

A hundred percent. I mean, they would come up with a, what happened is a dealer would come up with the genesis of an idea. They just knew what they needed to do to make their job easier, better, stronger, more profitable, better customer service, whatever it happened to be. Our job was to interpret that, grow it, fertilize it, water it. And then see how we could spread that across more people and get a better idea, a stronger idea, something that was more fully developed and deploy it. And even in those quote unquote old days, we looked at this over at most a year and a year and a half plan. We never locked people into long-term contracts. And in fact, we never had a services agreement or a software subscription agreement with anybody. I'll have to go back and look, but I think it was 2007,2008 before that actually started.

1988.

Yeah,20 years later. And that's okay because we were acquired by a commercial organization whose job was to see us grow and said in order to protect ourselves as a publicly traded company, We have to do things like revenue forecasts and guaranteed revenue amounts and things like that. So consequently, people have to be signed in for at least a year contract so that you have some idea of what your revenue picture looks like as you progress through the year.

Yeah, it does, but it can be balanced, Ron. And, you know, in 35 years, that was my job was to balance it. And you've seen me do it in the past. I can tell you I'm going to do it in New Orleans in November again. And that is to stand in front of a bunch of dealers using a particular system and try and balance out what needs to be done. What needs to be prioritized? What's the biggest bang for the buck? I mean, obviously, it really is a marriage. So what you're trying to do is say, OK, this is what I'm going to bring to the table. This is what you're going to bring to the table. How's it going to benefit at the end? Fundamentally, though, the key piece to that was that the dealer business system provider was vested in the success of the dealership. That was how they made their money.

The answer to the billion dollar question of why things are changing is the dealer business system provider now answers to a whole different host of people, starting with maybe a parent organization. It may eventually go to being publicly traded and have to answer to shareholders. Those shareholders may or may not even know what the industry is, let alone the intricacies of the industry. And right now, if you were to go. top to bottom through a lot of these dealer system providers. I would say, you know, starting from a general manager's position on up, most of them have never even been in a dealership, let alone ride in a tractor, let alone stand in a field, let alone stand on the other side of a parts counter trying to get a part. So it's pretty hard to be able to relate to your customer and provide them and, you know, nurture the genesis of their ideas. If you don't really, really understand what their business is.

Well, the way you reconcile it is the fact that fundamentally you have to be prepared to change. The dealership needs to change. The dealers' expectations need to change. The suppliers, the OEM suppliers need to change. The problem is that it's forced change. Nobody is doing willingly. willingly. Nobody is sitting down and saying, okay, this is not what we want to be. This is who we want to be. And I think that's the fundamental difference. If I was a dealer business system supplier today, this is who I want to be to my customer. I want to be a most valued partner. I want to be an asset to them, not in just the software that I provide for them, but the ideas that I bring to them, that the collaboration that we can do to help that business flourish, because my business will flourish at the same time. Instead, what you're hearing, and I've been called on this, like I said, I got a lot of phone calls.

Instead, what we're hearing is, I want you to sign a five-year contract, because if I lock everybody into a five-year contract, and I have 500 or 1,000 customers across North America, that I have locked in at umpteen billion dollars, I can come up with a valuation for the company that is the umpteen billion plus an X multiple because it's guaranteed for five years. I can take it to Wall Street. I can sell it and ultimately make money. So how did that help the dealer? Where did XYZ dealer in the middle of Kansas benefit from that exercise other than he signed his life away for five years?

Well, but again, if you're going to be a billion dollar company, if you're going to be, you brought up Amazon, I'll use that as a good example. You can bring up Apple, we'll use that one. They're all good examples because fundamentally, the people that they focus on is the end user of their products. It's about that experience. So when I keep saying, It's not what you want to be. It's who you want to be. And Amazon didn't say we want to be a billion dollar company, umpteen billion dollar company. What they said is we want to be your trusted partner. And that started with that. We won't ever question a return. Return it. No problem. We want nobody once has ever said, did you buy that from us? Have you tested this? Are you really sure? Their answer was, if you're not satisfied, we'll take it back. They created a culture and the dealerships can do the same thing.

They can create that culture, but they're not getting any assistance from the back end because they're not dealing with software manufacturers that are coming in and saying, OK, listen, we want to partner with you. We'll meet at your dealership with your top 20 customers and we want to find out from them other than cost. What would be the single thing that we could do that would make it easier for you to do business with us? Do you really think dealers know the answer to that question today?

And in every other business that we look at outside of automotive, trucking, heavy equipment, it has been done. Just think about it. I mean, it's been done with online banking. I don't want to go to the bank. I don't want to deposit checks. I don't want to have to see a teller. I don't want to deal with it. I don't want to receive payments. If you think about it from. From the perspective of Amazon, right? I don't want to go to a store. I don't want to be worried about how I'm going to return things. I don't want the exact same thing. In our business, and our business being that construction equipment, agricultural equipment, over-the-road trucking, we don't have that innovation that says, is there anything more that the customer could want? But if we want to pull this back, and I want to pull it back to the subject at hand, which was wait, wait, don't sign it.

And I think this is the opportunity to change because if my advice to a dealer, and like I said, this is not an argument I may have mentioned. I had one of the suppliers who told me that I was naive about the marketplace and that I was building this argument on a straw house. So I'm just going to tell you how firm this foundation is in the first place. And that is if a business system supplier comes to me and says, I want you to sign a five-year agreement for a software subscription. It's going to be a fixed cost this year of, let's do simple math, $20,000 with a maximum increase of 5% year over year, cover cost of living, whatever it has to be. My first question back to them should be, for my undying faithfulness here in signing this contract, Can you tell me exactly what you're going to provide in the first 90 days, in the first 120 days, in the first year, and in the second year? I don't think you can even start to think beyond that.

But if you're going to charge me anything more than you're charging me right now, I need to know what is the value proposition that you're going to give me to be able to do that. If their answer is, well, you know, there's a lot of doublespeak there, but I really want to know what product, what's going to happen. And if the answer is nothing, I can tell you from the inside, those manufacturers and those dealer business systems have already said, he can't change, it's too expensive. So essentially, they've got you handcuffed. And this is scary because any one of those dealer principals that I go to talk to, they'll get their horns up in a big hurry and look back at you and say, we did this before the business system was here. And we can certainly continue to do it after the business system is here. Did we get a lot of? of, you know, efficiencies realized? Were we able to cut down on people? Yeah.

But fundamentally, if that dealer business system provider says, no, if you don't sign a three, a five-year contract with me, you don't get to do business with me, then I'll tell you what, it's time to go find another dealer business system because they're out there. And there are people who say, I will work for you, with you for one year, for two years, for three years, whatever it takes to move your dealership forward. And The next question I have for them is, so tell me what you're going to do for my end user customer. Because until you can make that business grow through the end user customer, that, in fact, is a house of straw. And that's what worries me where we are right now. Growing by acquisition, great. You're bigger. I get it. You want to make more money? You've got to have more customers. You've got to have more satisfied customers. You have to have more customers that are willing.

to buy more equipment from you, do more parts business, do more service. Obviously, you can make some of that up in price increases, but that only lasts so long because we're all going to go find the cheapest place we can. So this comes back to who do you want to be again? And is this a partnership that you have with your business system supplier? Because if it's a partnership, hey, Ron, let's make it real simple. You find a kid today at 20 years old and see how anxious they are to get married because they're not getting married, because they have a partnership. They find somebody that they can work with, somebody that they can live with. They don't turn around and run at the first fight, but they're not as vested in the fact that we're going to stay together forever because a piece of paper says we have to do it. They have to earn each other's respect and care every day. Same thing in the marketplace.

Why doesn't a dealer business system have to earn your business every year, every day?

You want my opinion? Of course. Okay. Well, I wouldn't have a computer system at my location now under any circumstances. And I'll tell you the reason why. Because we are dealing with situations in terms of economics, geography, weather, geology, whatever you want to do, that there's a certain safety aspect, first of all, of having a system located. Second of all, you know, we were all anxious to get out of contracts for our telephones. so that we could buy our own phones. Most of us don't go to the Apple store and buy a brand new phone anymore. We still do it through a phone company because we still want to be able to have the facility to upgrade on a regular basis. I saw an interesting contract this morning and you talk about, this is a great contract because you cell phone as an example earlier. So the cell phone contract is $25 a month, anywhere, US, Canada, Mexico,5G, all you can eat, no limitations.

You know, the threat that you may be slower if it's a busy time, you know, things like that. Phenomenal. Of course, not available in Canada, but just a phenomenal package. And I thought, how could it get any better? And this morning they emailed me and said, we noticed you liked our $25 package for an additional $25. We'll give you, which would make it $50 a month run for $50 a month. We'll give you that same package. We'll give you the brand new latest titanium iPhone 15 that just came out. And every year that Apple releases a new iPhone or a new iteration, just give us your old phone back. We'll send you a brand new one and you're ready to go. So you will always be using the latest and greatest technology.

At any point. That's exactly it. Yep.

That's it.

Yeah, well, that's a governmental issue. But we don't worry about those folks. But fundamentally.

Not necessarily.

It can be presented that way. I think there's two ways to look at it. And again, this is where you have to have a relationship with that business system supplier because some people just want to be a cookie cutter. They just want to be one of 20 examples of a data set on that server. use the same software, use the same hosting. I get that. That's fine. And I can do that at a reduced price. If in fact, I want to be different and I want to have a, and I have some different packages on there and I have some other interfaces and I'm using some other bolt-ons, like you said, all exist fine. But I'm not going to be, I'm not going to be hanging out with everybody else. In doing that. you lose some of that benefit of, you know, some of the discounts that would apply based on quantity. So I'm not hosting 10 separate, I'm now hosting 10 separate systems instead of one system 10 times. And the price is different.

Yeah, that's not the part that scares me. To have somebody do that in a traditional sense, that's likely to be caught, found somewhere down the line because there's enough audit trails that I would hope that most of that gets caught. That's not the part that worries me. The part that worries me is anytime your data is out of your control. And by that, I mean, it's not on a piece of paper in your wallet, on your desk, in your drawer. You run the risk of a ransom situation. Because in most cases, the hackers, I don't want to say they're not bright enough because they're beyond bright, but they don't have the business acumen to say, okay, this is a way that I can embezzle a dime at a time. They would rather lock up your data. not even knowing what it is, but just knowing that it's valuable and say, Ron, it's going to cost you to get it back, which is a better example for one of the reasons I would like to see a hosted solution.

Because most of the hosted solutions deal with redundant databases. They deal with redundant data centers. You know, I'm a little guy in Canada. All of my stuff is, it doesn't live here. I have one set of servers that lives in Finland. Thank you for visiting it last week. I have another set that sits in Germany. I'm hoping to go visit it this winter. You know, I have two mirrored sets of servers in two completely data centers, different data centers. And that's just for my stuff.

So there is, you know, and now I'll come to the rescue of the... dealer business systems guys who sometimes take a little bit longer to do things than we'd like to see. And Ross Atkinson always worded it best. He only wanted to deal with data that had been washed and cleaned because he didn't want it to make his system dirty. And it was a very specific exercise that if you wanted to touch data from the dealer business system, then you had to go through a rigorous set of APIs and validations and meet certain criteria to do it. And it does add a layer of complexity into the time that it takes to develop. I'm okay with that, but it still pushes back. You're going to end up with diversified business systems because nobody can be that good at everything.

You know, I don't think there is today a dealer business system that has a rental package that they install, maintain and take care of themselves that would be listed anywhere in the top 10 rental packages. However, I would say the same thing about a rental piece, a piece of rental software, that there is an integral piece of running a dealership that isn't in there. So that's a prime example of two that should touch each other. Again, if. If there's a cooperative effort there and people will really go to the effort of making sure there's data integrity across both, then it works fine. The challenge is bigger than that is when people are using independent spreadsheets and ODBC connections and things like that, because they're going to say, hey, I'm going to start writing spreadsheets off of my system. And then I'm going to update my spreadsheet, dirty data, no validation. None of the things that happen in the business system.

And I'm going to take that and upload it back into the system again. And that's where things just go haywire. And it happens.

Okay, so now it's my turn to take you to a different room. Okay. Because you can keep leading this conversation. to the perfect spot right now for something that we talked about in a blog post or a podcast months ago, which is the need to be able to have some experience and expertise on the information side of things. We talked about the lack of chief information officers. You hear a lot of times talk about CTOs. Well, I'm the chief technical officer. Well, congratulations. That's great. You acquire PCs, you choose business systems, you negotiate contracts. I like that. But who in the dealership is responsible for knowing where all of these pieces of information sit, reside, and how they touch each other and what the overall impact is? Because I'll tell you, except for some of the largest dealers out there, almost nobody has a chief information officer. Almost nobody has somebody who really understands all of those data sets.

So you bring up a good point. It is a critical, critical function. And whether it's CTO, whether it's CIO, it's a critical function. And I'll bring us right back to the front of the house again. So what happens is we take somebody who doesn't understand the system. We take someone who doesn't know what it is that they require. They don't know what their roadmap is going forward technology-wise. They rely on a business partner, specifically their dealer business system, to guide them through that. And in comes a predatory shark that says, no problem, sign this for five years. I'm going to give you everything you want. And wait, wait,

Exactly, exactly.

You know, I used to, I used one of my very early memories of dealing with a John Deere dealer in Nebraska. This, this fella actually had among other really neat ideas. He had a cafe in the dealership. And it was just to make it convenient for people to come in and out and get their parts and stay there a little bit longer and everything else. He could give you all kinds of justifications for it. He's since passed away. But the thing that I thought was really interesting was on Saturday mornings, he bought, brought and paid for breakfast for 20 different customers every Saturday morning. You get an invitation. It was kind of a big deal. You got to come have breakfast with the dealership in their own cafe. It was nice. It was well provided. They did that simply so that they could have that opportunity to interface with the customer and find out what the customer wanted.

I can tell you in those days, we took more good ideas from dealers who were in touch with their customers than we did from people who were in touch with their banks or in touch with their investors. The answer is. If a dealership is in touch with the end user customer, if the business system is in touch with the end user customer, they are growing and changing at a rate that the customer is growing and changing. My question to a dealer today is, are you changing as fast as your customer isn't or is?

I got it. I got it. I think I see it on your face, Ron. There is a Jack Welsh quote coming out of you right now, isn't it? What is it? It is going to be when the rate of change externally exceeds the rate of change internally, the end is near. Am I close?

So I'll take this and ask this question. Do you think Carl Sewell made his customers sign a three-year contract or a five-year contract with him?

Wait, wait. Don't sign it.

The challenge is we developed software up until probably the last five years under the sole guise of how is the software going to enable the business, whatever business it is, wherever you were in that chain, to make more money. And I think the answer now has to be, you know, we've made all the money we're going to make. We have wrung that towel dry. Now the question is. How are we going to make people want to do business with us? How are we going to make it easier for them to do business? How are we going to provide service levels above and beyond? I mean, it's the Amazon example again. You know, I am an iPhone user. I know you're an iPhone user.

So here's the big thing, though. In either case, they are not the best phones available. Of course not. They happen to be the best phones that serve the purposes that we need. And that's the part that people need to come back to. Is it the best technology or is it the technology that does the best?

And the reason they're peddling those legs so hard is because... The consumer has changed and nobody realizes it anymore. I used to buy from my dealership because my dad bought from my dealership because his dad bought from his dealership. That world has changed. I fire it up now and he who gives me the best price and answers the fastest and promises me the best service and ways to continue and the easiest returns and whatever the indicator is, then that's where I go. So you get one chance. If you screw up once now, they're gone. Used to be you got a couple passes. You don't get a pass anymore.

Well, I guess the first question is you should never sign a contract under duress. That's the first thing that you need to remember. You do have choices. You do have options. We talked about ransomware. Don't be held ransom by your dealer business system supplier. Set the expectations when you write the contract. The contract is a good contract makes both people feel like they were in a good position. if they want to have the good position of knowing that they're going to be your business partner for the next year, if you need to go two years, go two years. If you have to go three years, it's not my idea. If you've got to go five, get your head checked. Because the answer is, if that's what they need, then what is it that they're going to give you? And I'm not talking about a fixed price. I'm talking about a commitment to my business. I'm talking about a commitment to my customers. And I'm talking about a commitment to growing my dealership.

So I really need to know what you're going to give for me. I think the other thing is don't assume that you can't change. You can change. If I hear one more business system supplier say the barriers of change, the cost is not the barrier of change. The barrier of change is the people that you're dealing with. And the barrier of change is your own mentality on what we have to do for our business. Be prepared to change. I hope you don't have to pull that gun out of the holster, but just know that you've got it because you can change. So don't sign under duress. Don't rush. Know that you got change. Explore your options. There's a lot of options to explore.